IRS Trick I’d Never Seen Before

The third amended IRS claim in my client’s case added entries for an excise tax for 2015 and 2016.

Excise tax? New one on me where the debtor was a general contractor.

I called the IRS agent on the POC for some hints as to what the tax was all about . I needed to know how to analyze whether it was real and correct. It was enough money to threaten the feasibility of the already precarious Chapter 13 plan.

Comes back the answer: it’s the penalty for not having health insurance as required by the Affordable Care Act.

A call to the accountant who prepared the return, and she caught the IRS up in their blunder.

The no-insurance penalty is already included in the debtor’s 1040 on line 61.

Caught double dipping

The original IRS proof of claim carried the unpaid balance from the client’s tax return straight to the claim.

But as I learned, that number already included the tax penalty for no insurance.

So a separate priority claim for “excise tax” was simply duplicative.

I have no reason to think, yet, that it’s a nefarious scheme to eradicate the national debt via bankruptcy proofs of claim. But there was certainly something unsettling about the reaction of the IRS agent with whom I’ve worked for decades.

When I asked about the “excise tax”, his reaction was a variation on “huh?”. Then he shouted out to a co worker and repeated to me that I could find the calculations on form 1095.

Only the accountant tells me that form 1095 is the one the employer uses to report providing health insurance. That form doesn’t appear in the employee’s return.

Be forewarned

I have no idea whether this issue is pervasive or a one-off occurance.

But now you can watch for it and snuff it out where the client has already shouldered the penalty for going bare.